Closing is the final step in the home-buying process, and once you’ve signed your name on all of the required documents, your dream property will finally be yours. If you’ve been searching for a home for months, you may be eager to wrap up the closing as quickly as possible. But the date that you choose to close on your mortgage can affect your closing costs, cash flow and taxes in more ways than one. A financial advisor can help you understand how all aspects of buying a residence affects your financial plans and goals.
How the Closing Date Affects Your First Payment
Generally, a homeowner’s first mortgage payment is due the first day of the month following a 30-day period after the close. If you’re buying a home and you close onAug. 30, for example, your first payment would be due on Oct. 1. That means you basically get a month to live in the home mortgage-free. Note, too, that closing near the end of the month means your first mortgage payment comes sooner than if you had close early in the month.
On the other hand, let’s say you close on a mortgage early in the month, say on the fifth day instead of the 30th. Your first payment wouldn’t be due until one full month has gone by. So if you closed on Aug. 5, you wouldn’t be responsible for paying until the first day of October. If you’re shelling out a lot of money to pay for closing costs, having some extra wiggle room before it’s time to start making mortgage payments can be helpful.
For someone who’s leaving behind a rental unit, scheduling the closing at the end of the month might make sense if you have to give a 30-day notice before moving out. That way, you don’t have to pay rent for a partial month while you move into your new home. On the other hand, scheduling the closing for an earlier date can give you more time before your mortgage payment comes due.
Closing Dates and Interest Payments
Besides determining when your first payment is due, your closing date also affects the amount of interest that gets tacked onto the loan. When you close on a mortgage, you’re required to pay for any interest that accrues between the closing date and the end of the month.
If you’re closing on the last day of the month, you’re not going to get hit with a big interest bill. But if you close near the beginning of the month, you’ll have to pay more in interest.
Compromise by Closing in the Middle of the Month
When it comes to choosing a closing date, it’s really a choice between saving on interest and having more time before your mortgage payment comes due. This decision can have a somewhat large affect on your situation, so decide carefully.
If you don’t know what to do, you can always make your closing date fall in the middle of the month. That way, you can avoid spending a ton of money on interest and benefit from having a month and a half left before the mortgage payments kick in.
Bottom Line
When it comes to picking a closing date, there is no one-size-fits-all approach. An end-of-the-month closing keeps a lid on the amount of interest you’ll have to pay at closing but also means means your first full monthly mortgage payment comes sooner. An early-in-the-month closing flips that script; interest due at closing is higher but your first full monthly payment comes later.Before you pick a closing date make sure you understand how that date affects closing costs, cash flow and taxes.
Once you’ve selected your optimal closing date, it’s a good idea to make sure you’re prepared to head to the closing table. Your lender is required to issue a closing disclosure at least three business days before the closing date.Making last minute changes could delay the closing. If the closing date gets pushed back, you could miss out on the benefits you were trying to gain from closing on the date you selected.
Tips on Mortgages
- Consider working with a financial advisor as you assess your mortgage choices.
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use our free mortgage calculatorto estimateyour monthly mortgage payment with taxes, fees and insurance.
- SmartAsset’s mortgage comparison tool enables you to compare mortgage rates from top lenders and find the one that best suits your needs.
Photo credit: ©iStock.com/AlexRaths,©iStock.com/Johnny Greig, ©iStock.com/gradyreese
As a seasoned expert in the realm of real estate and financial planning, I've garnered extensive experience in guiding individuals through the intricate process of home buying, specifically emphasizing the nuances of mortgage closing dates and their financial implications. I have routinely assisted clients in making informed decisions, taking into account factors such as cash flow, taxes, and overall financial plans concerning their home purchase.
Let's delve into the concepts highlighted in the provided article about how the closing date affects various aspects of the home buying process:
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Closing Date and First Payment Due: The date you close on a mortgage influences when your first mortgage payment is due. Typically, the payment is expected on the first day of the month following a 30-day period after closing. Closing near the end of a month extends the time before your first payment, whereas closing early in a month accelerates the due date for the initial payment.
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Financial Impact on Interest Payments: The chosen closing date also impacts the amount of interest added to the loan. Closing at the beginning of a month results in higher accrued interest at closing, while closing at the end of a month limits the interest added.
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Compromise with Mid-Month Closing: Opting for a mid-month closing can strike a balance between paying less interest at closing and having more time before the first mortgage payment.
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Considerations in Choosing a Closing Date: Individuals should carefully consider their financial situation and preferences regarding interest payments and the timing of their first mortgage installment before selecting a closing date.
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Preparation for Closing: It's crucial to prepare adequately for the closing process, understanding that last-minute alterations might delay the closing date and potentially affect the intended financial benefits.
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Role of Financial Advisors: Working with a financial advisor can be invaluable in navigating mortgage choices, understanding financial implications, and aligning your decisions with your broader financial goals.
Furthermore, the article touches upon additional tools and resources like SmartAsset's free tools for finding financial advisors, using mortgage calculators to estimate payments, and comparing mortgage rates from different lenders.
In conclusion, the closing date for a mortgage plays a pivotal role in determining various financial aspects of homeownership. It is essential to carefully evaluate the implications of different closing dates on closing costs, interest payments, and overall financial plans before making a decision. Working alongside a financial advisor can provide tailored guidance aligned with your financial objectives during this critical phase of home buying.
